Looking under the hood at Local Motors' demise amid autonomous-shuttle headwinds

When riders fled public transit during the early throes of the pandemic, Local Motors suffered from shelved orders for its 3D-printed autonomous Olli shuttle. When orders returned and then proliferated, the ongoing chip shortage stymied the company's ability to fulfill them.

The double whammy of the coronavirus and supply chain constraints emerged as two central reasons Local Motors shuttered its doors this month, according to two former company executives. But they were not the only reasons.

Costs associated with keeping a human attendant aboard each vehicle made the Ollis more expensive than operators anticipated, resulting in customers less inclined to buy the shuttles as their own pandemic-era budgets were strapped. A quirk in federal regulations favored foreign shuttle providers over domestic manufacturers. The company eked along on a shoestring budget that always stretched limited resources.

Still, the end came as a surprise.

"None of us saw it coming, frankly," said Bob De Kruyff, who was senior vice president of engineering and later vice president of regulatory affairs during his four years with the company. "It was pretty abrupt."

The demise comes amid headwinds for the entire passenger-carrying autonomous vehicle industry. Technical readiness, regulatory hurdles and uncertainty surrounding the business model have prompted delays and, in some cases, pivots toward deliveries and freight applications. And add basic operational hurdles to those challenges.

"The issues with shuttles is that they're slow and have extremely hard braking," said Grayson Brulte, a mobility strategist who runs Brulte & Co. consulting firm. "I don't see a global market for shuttles. Perhaps in a dense, urban environment. ... Shuttles are a low-margin business."

Amid tectonic industry shifts, Local Motors inched along. The company raised $15 million in October 2020 in a round led by the Toyota-backed Mirai Creation Fund, according to Crunchbase records. But it was mired in a "perpetual fundraising cycle" from which it could not break free, according to a second former executive, who asked not to be identified.

Both incumbent investors and prospective ones balked when the company sought further funding in recent weeks.

Part of the reason for their reluctance was structural. Competitors such as Optimus Ride owned the intellectual property underpinning their self-driving systems. Facing the same industry headwinds, Optimus struck a deal to transfer its engineering team and intellectual property to Magna International in a so-called acqui-hire, announced days before Local Motors' own end.

Local Motors stood apart from others for its unique approach of 3D-printing vehicle parts. But in the automated technology realm, the company had no such intellectual property. Instead, it used self-driving systems provided first by Robotic Research and later by Perrone Robotics. At times, Local Motors considered a more vertically integrated approach that might include buying an autonomous system provider and a mobility services operator, but there was tepid interest among investors in funding such a spree, according to the second executive.

That may have hampered long-term strategy and fundraising. But once the initial shock of the pandemic wore away, the day-to-day business grew more promising.

"We had quite a few orders, and the market was really picking up," De Kruyff said. "What we didn't have, which was always in my mind, was enough critical mass. We were always an up-and-coming small company. We didn't have a whole lot of leverage with suppliers. But you can't ship without certain electronics and chips, and that was killing us."

If chips were the most acute challenge, the most peculiar complication Local Motors endured involved federal rules.

A 2015 law, Fixing America's Surface Transportation Act, contained provisions that limited the ability of companies that had not previously produced vehicles that complied with Federal Motor Vehicle Safety Standards to test and deploy their creations.

Newcomers such as Nuro and Local Motors instead could apply for exemptions from the standards to get larger numbers of vehicles legally on the road. But the exemption process has proved cumbersome: It took U.S. Department of Transportation officials 18 months to process and approve Nuro's application, which remains the only exemption request granted across the industry.

Local Motors' Olli vehicles were not eligible for the exemptions, the second executive said, because they weighed more than 4,000 pounds.

Meanwhile, a federal regulation called Part 591, created to help foreign companies import exotic sports cars such as Ferraris and Lamborghinis, was used by European autonomous shuttle manufacturers EasyMile and Navya to ship their vehicles to the U.S. without needing to conform to Federal Motor Vehicle Safety Standards.

The only way for Local Motors to deploy its shuttles beyond closed-campus environments and on U.S. public roads, then, was to become an importer itself. Thus began a frequent and onerous odyssey: From its Knoxville, Tenn., factory, Ollis were shipped north to Detroit, where they were transported across the Ambassador Bridge into Windsor, Ontario.

Local Motors would then file an application with the Department of Transportation and U.S. Customs and Border Protection to import the vehicles, which would be quickly approved. Without any work done to the vehicles in Canada, they'd be taken back across the bridge and legally imported into the U.S. under Part 591.

Discussions with federal officials from both the Trump and Biden administrations ultimately did not resolve the regulatory entanglements, though NHTSA has since filed a notice of proposed rule-making that could soon ease the burden on companies with nonconforming vehicles. It is expected to be published in the Federal Register in April.

Local Motors delivered Ollis for 18 months via that logistical process, according to the second executive. It added an approximately $15,000 cost to each shuttle sold, which came on top of the retail cost of $275,000 to $325,000.

It wasn't a decisive blow, but the regulatory burden didn't help with penny-pinching public transit customers, and it exacerbated delays.

Local Motors arrived at the dawn of an era in which visionaries were beginning to sketch a fresh approach to transportation.

Tesla was founded in 2003. It released its first electric Roadster in 2008. Uber started the ride-hailing industry with its formation in March 2009, and Google began its self-driving car project also that year.

Jay Rogers founded Local Motors in 2007 with a notion of using 3D-printing technology to upend the plodding speed at which new vehicles were designed and manufactured. Serving in the Marine Corps overseas, he grew upset watching friends die because they were stuck with antiquated equipment.

"Vehicles were always of interest, but part and parcel to the reason why these friends were not making it out," Rogers told Automotive News in 2019. "They were designed for wars that were three decades earlier, if not further. ... We were suffering from a technology lag."

Rogers was CEO of Local Motors from its founding until last September, when he departed. He could not be reached for comment since the company ended operations.

As interest in autonomous vehicles grew, Local Motors concentrated its business around the 3D-printed Olli. Although it looked like many of the other toaster-shaped AV shuttles on the market, it became something of a marvel. Local Motors worked with Braun to design an automated wheelchair-accessible ramp. The Olli contained other innovations, with software that could process sign language and understand voice commands.

In an era when many AV companies profess to exist to help disabled communities gain newfound independence but in practice do little to make that happen, the Olli was admired for being the real deal.

What happens with the Ollis in service and their ongoing maintenance remains a question. A firm has been hired to handle a potential sale of the company's remaining assets.

"We were really clicking well, so it's a shame," De Kruyff said. "We had worked closely with some competitors, and we felt like, technologically, we were on par or better. But they had dollars behind them, and we didn't have that luxury. That haunted us from day one. We had a lean team, and we were able to do some really good things. Now it's over. But I'm hoping somebody is watching out there, and maybe they can pick up the pieces."